THIRD QUARTER HIGHLIGHTS:
- Revenue increased 127% to $12.1 million in the current period, from $5.3 million in the third quarter of 2014 based on strengthening demand and sales in the global desalination market
- Gross margin improved to 59% from 44%, an increase of 1,500 basis points year-over-year
- Operating expenses of $7.4 million, down 5% year-over-year
- Net loss of $(0.3) million, or $(0.01) per share, in the current period, compared to net loss of $(5.5) million, or $(0.11) per share in prior year period
SAN LEANDRO, Calif., Nov. 5, 2015 (GLOBE NEWSWIRE) -- Energy Recovery Inc. (NASDAQ: ERII ), the leader in pressure energy technology for industrial fluid flows, today announced the results for the third quarter ended September 30, 2015.
Management Commentary
Joel Gay, President and Chief Executive Officer, remarked, "We achieved record quarterly revenue and meaningful margin expansion which reflects strengthening demand in the global desalination market and demonstrates the success of the sharp execution of our reloaded strategy. During the quarter we continued to bolster our portfolio of large-scale projects supported by our PX ® Pressure Exchanger ® technology including mega-project awards totaling $3.8 million which contributed to our year-over-year revenue growth and improved margins. We continued to execute on key initiatives during the quarter driven by our cost rationalization program. These actions bring us closer to our goal of a return to profitability.
Mr. Gay continued, "Looking ahead, Energy Recovery has a bright future. Along with encouraging third quarter results, we also recently signed a 15-year licensing agreement with Schlumberger Technology, for the use of our VorTeq™ hydraulic pumping system, which highlights the successful application of our proven technologies to other industries. We remain sharply focused on fully commercializing and customizing the VorTeq design for seamless integration into Schlumberger's best-in-class operations, thereby realizing the full potential of this disruptive technology. This transformative transaction validates our strategic vision to broaden and diversify our product portfolio, and underscores the success of our reloaded strategy. Overall, we have great confidence in our business and the strategy we are executing to create shareholder value."
Revenue
The Company generated net revenue of $12.1 million in the third quarter of 2015, reflecting an increase of 127% when compared to the third quarter of 2014. The increase in revenue was primarily due to a mega-project shipment totaling $3.8 million and higher OEM and AM shipments of $1.7 million and $1.5 million, respectively. The Company's revenue increased sequentially, by $1.6 million or 15%, from $10.5 million in the second quarter of 2015 as a result of favorable performance across OEM and AM channels.
Gross Margin
Higher sales volume attributable to a mega-project shipment was the primary driver to a gross profit margin increase to 59% in the third quarter of 2015 from 44% in the prior-year quarter. Other contributing factors also include a favorable shift in both price and mix. The Company's gross profit margin also increased sequentially from 54% in the second quarter of 2015 mainly due to a shift in channel and better pricing.
Operating Expense
Operating expenses decreased to $7.4 million during the third quarter of 2015 from $7.8 million in the third quarter of 2014. The decrease was primarily due to austerity measures initiated in the first quarter of 2015. Operating expenses decreased sequentially by $1.5 million or 17% from $8.9 million chiefly due to non-recurring expenses related to CEO transition expenses and higher legal expenses.
Bottom Line Summary
To summarize financial performance for the third quarter of 2015, the Company reported a net loss of $(0.3) million, or $(0.01) per share, primarily due to higher volume and favorable mix. Comparatively, the Company reported a net loss of $(5.5) million, or $(0.11) per share, in the third quarter of 2014. Year-to-date, the Company reported a net loss of $(12.0) million, or $(0.23) per share.
Cash Flow Highlights
For the nine months ended September 30, 2015, the Company generated net cash flow of $6.0 million.
The net loss of $(12.0) million included non-cash expenses of $6.7 million, the largest portion of which were share-based compensation expenses of $3.5 million, and depreciation and amortization expenses of $2.9 million.
Cash used by operating activities was $(7.7) million; favorably impacting cash from operating activities by $2.8 million was the monetization of receivables, chiefly offset by a $(0.6) million increase in inventory, a $(3.6) million decrease in accrued expenses and liabilities, and a $(1.7) million litigation settlement.
Cash generated from investing activities was $13.1 million; favorably impacting cash from investing activities by $11.8 million and $1.9 million were maturities of marketable securities and the release of restricted cash, respectively; offset by $0.6 million of capital expenditures. Cash generated from financing activities was $0.6 million attributed to the issuance of common stock related to option exercises.
Balance Sheet Highlights
The Company reported current and non-current restricted cash of $3.62 million, unrestricted cash of $21.50 million, and short-term investments of $1.34 million, all of which represent a combined total of $26.46 million.
FORWARD-LOOKING STATEMENTS
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on information currently available to us and on management's beliefs, assumptions, estimates, or projections and are not guarantees of future events or results. When used in this document, the words such as "confident," "encouraging," "reflect," "validate," and similar expressions are intended to identify forward-looking statements, but are not exclusive means of identifying such statements. Because such forward-looking statements involve risks and uncertainties, the Company's actual results may differ materially from the predictions in these forward-looking statements. All forward-looking statements are made as of today, and the Company assumes no obligation to update such statements. In addition to any other factors that may have been discussed herein regarding the risks and uncertainties of our business, please see "Risk Factors" in our Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on March 6, 2015 as well as other reports filed by the Company with the SEC from time to time.
CONFERENCE CALL TO DISCUSS THIRD QUARTER RESULTS FOR 2015
| Live Conference Call: Thursday, November 5, 2015, 5:30 pm ET / 2:30pm PT Listen-only, Toll-free: 888-632-3383 Listen-only, Local: 785-424-1676 Conference ID: 555478 |
| Conference Call Replay: Toll-free: 888-203-1112 Local: 719-457-0820 Access code: 555478 Expiration: November 19, 2015 |
Investors may also access the live call or the replay online at www.streetevents.com or at the Investors section of the Company's website at www.energyrecovery.com . The replay will be available approximately three hours after the live call concludes.
ABOUT ENERGY RECOVERY, INC
Energy Recovery (NASDAQ: ERII ) recycles and converts wasted pressure energy into a usable asset and preserves pumps that are subject to hostile processing environments. With award winning technology, Energy Recovery simplifies complex industrial systems while improving productivity, profitability, and efficiency within the oil & gas, chemical processing, and water industries. Energy Recovery products save clients more than $1.5 billion (USD) annually. Headquartered in the Bay Area, Energy Recovery has offices in Ireland, Shanghai, and Dubai. For more information about the Company, please visit our website at www.energyrecovery.com .
| Unaudited Consolidated Financial Results | |||||
| ENERGY RECOVERY, INC. | |||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
| (in thousands, except per share data) | |||||
| (unaudited) | |||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||
| 2015 | 2014 | 2015 | 2014 | ||
| Net revenue | $ 12,112 | $ 5,342 | $ 28,460 | $ 15,646 | |
| Cost of revenue | 4,948 | 3,007 | 12,315 | 7,991 | |
| Gross profit | 7,164 | 2,335 | 16,145 | 7,655 | |
| Operating expenses: | |||||
| General and administrative | 3,590 | 3,078 | 15,230 | 8,112 | |
| Sales and marketing | 2,195 | 2,351 | 6,622 | 7,548 | |
| Research and development | 1,474 | 2,131 | 5,417 | 5,089 | |
| Amortization of intangible assets | 159 | 216 | 476 | 646 | |
| Total operating expenses | 7,418 | 7,776 | 27,745 | 21,395 | |
| Loss from operations | (254) | (5,441) | (11,600) | (13,740) | |
| Interest expense | — | — | (40) | — | |
| Other non-operating (expense) income | (48) | (2) | (130) | 127 | |
| Loss before income taxes | (302) | (5,443) | (11,770) | (13,613) | |
| Provision for income taxes | 38 | 63 | 180 | 187 | |
| Net loss | $ (340) | $ (5,506) | $ (11,950) | $ (13,800) | |
| Basic and diluted net loss per share | $ (0.01) | $ (0.11) | $ (0.23) | $ (0.27) | |
| Shares used in basic and diluted per share calculation | 52,237 | 51,861 | 52,071 | 51,626 | |
| ENERGY RECOVERY, INC. | ||
| CONSO LIDATED BALANCE SHEETS | ||
| (in thousands) | ||
| (unaudited) | ||
| September 30, 2015 | December 31, 2014 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 21,498 | $ 15,501 |
| Restricted cash | 1,385 | 2,623 |
| Short-term investments | 1,344 | 13,072 |
| Accounts receivable, net of allowance for doubtful accounts of $164 and $155 at September 30, 2015 and December 31, 2014, respectively | 8,060 | 10,941 |
| Unbilled receivables, current | 828 | 1,343 |
| Inventories | 8,893 | 8,204 |
| Income taxes receivable | 5 | — |
| Deferred tax assets, net | 240 | 240 |
| Prepaid expenses and other current assets | 1,506 | 1,317 |
| Total current assets | 43,759 | 53,241 |
| Restricted cash, non-current | 2,232 | 2,850 |
| Unbilled receivables, non-current | 420 | 414 |
| Long-term investments | — | 267 |
| Property and equipment, net of accumulated depreciation of $17,556 and $15,143 at September 30, 2015 and December 31, 2014, respectively | 11,346 | 13,211 |
| Goodwill | 12,790 | 12,790 |
| Other intangible assets, net | 2,690 | 3,166 |
| Other assets, non-current | 2 | 2 |
| Total assets | $ 73,239 | $ 85,941 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $ 1,683 | $ 1,817 |
| Accrued expenses and other current liabilities | 4,835 | 8,427 |
| Income taxes payable | — | 4 |
| Accrued warranty reserve | 600 | 755 |
| Deferred revenue | 948 | 519 |
| Current portion of long-term debt | 11 | — |
| Total current liabilities | 8,077 | 11,522 |
| Long-term debt, net of current portion | 39 | — |
| Deferred tax liabilities, non-current, net | 2,160 | 1,989 |
| Deferred revenue, non-current | 79 | 59 |
| Other non-current liabilities | 764 | 2,453 |
| Total liabilities | 11,119 | 16,023 |
| Commitments and Contingencies | ||
| Stockholders' equity: | ||
| Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding | — | — |
| Common stock, $0.001 par value; 200,000,000 shares authorized; 54,736,742 shares issued and 52,257,286 shares outstanding at September 30, 2015, and 54,398,421 shares issued and 51,918,965 shares outstanding at December 31, 2014 | 55 | 54 |
| Additional paid-in capital | 128,566 | 124,440 |
| Accumulated other comprehensive loss | (48) | (73) |
| Treasury stock, at cost 2,479,456 shares repurchased at both September 30, 2015 and December 31, 2014 | (6,835) | (6,835) |
| Accumulated deficit | (59,618) | (47,668) |
| Total stockholders' equity | 62,120 | 69,918 |
| Total liabilities and stockholders' equity | $ 73,239 | $ 85,941 |
| ENERGY RECOVERY, INC. | ||
| CONSOLI DATED STATEMENTS OF CASH FLOWS | ||
| (in thousands) | ||
| (unaudited) | ||
| Nine Months Ended September 30 | ||
| 2015 | 2014 | |
| Cash Flows From Operating Activities | ||
| Net loss | $ (11,950) | $ (13,800) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||
| Share-based compensation | 3,549 | 1,628 |
| Depreciation and amortization | 2,897 | 3,025 |
| Deferred income taxes | 172 | 169 |
| Amortization of premiums/discounts on investments | 154 | 348 |
| Provision for warranty claims | 91 | 87 |
| Provision for doubtful accounts | 88 | 293 |
| Loss on fair value remeasurement of hedge option | 55 | — |
| Loss on foreign currency transactions | 54 | (10) |
| Other non-cash adjustments | 11 | (179) |
| Valuation adjustments for excess or obsolete inventory | (126) | 212 |
| Reversal of accruals related to expired warranties | (213) | — |
| Gain on fair value remeasurement of contingent consideration | — | (149) |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | 2,810 | 10,935 |
| Unbilled receivables | 509 | 5,698 |
| Deferred revenue | 449 | 203 |
| Income taxes payable | (10) | (7) |
| Accounts payable | (134) | 64 |
| Prepaid and other assets | (242) | (1,045) |
| Inventories | (563) | (5,484) |
| Litigation settlement | (1,700) | — |
| Accrued expenses and other liabilities | (3,602) | (2,256) |
| Net cash used in operating activities | (7,701) | (268) |
| Cash Flows From Investing Activities | ||
| Maturities of marketable securities | 11,845 | 4,355 |
| Restricted cash | 1,856 | 3,338 |
| Purchase of marketable securities | — | (273) |
| Capital expenditures | (557) | (2,301) |
| Net cash provided by investing activities | 13,144 | 5,119 |
| Cash Flows From Financing Activities | ||
| Net proceeds from issuance of common stock | 558 | 1,165 |
| Proceeds from borrowings | 55 | — |
| Repayment of long-term debt | (5) | — |
| Payment of contingent consideration | — | (1,375) |
| Repurchase of common stock for treasury | — | (1,633) |
| Net cash provided by (used in) financing activities | 608 | (1,843) |
| Effect of exchange rate differences on cash and cash equivalents | (54) | 44 |
| Net change in cash and cash equivalents | 5,997 | 3,052 |
| Cash and cash equivalents, beginning of period | 15,501 | 14,371 |
| Cash and cash equivalents, end of period | $ 21,498 | $ 17,423 |
Chris Gannon Chief Financial Officer 510-483-7370
